TMI Blog1986 (8) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... No. l company owns a factory at Digvijay Nagar gram (Sikka) in Jamnagar district. It is engaged in manufacture and sale of cement. It also owns a factory at Digvijaynagar, Ahmedabad for manufacture and sale of asbestos cement products such as sheets, corrugated or plain asbestos pressure pipes, roofing accessories and couplings etc. Petitioner No. l company holds L.4 licence for manufacture of asbestos cement products. Cement and asbestos are raw materials used in the manufacture of asbestos cement products. For the purpose of manufacturing asbestos cement products in the factory at Ahmedabad, cement clinker in the form of pallets is transported from Sikka factory to the cement grinding unit of petitioner No. l in Ahmedabad. The clinker is ground into cement primarily for captive consumption, viz. manufacture of asbestos pressure pipes and sheets etc. Petitioner No. l company pays excise duty on the quantity of cement cleared from the cement grinding unit. 3. The other component or raw material used by the petitioner company for manufacture of asbestos raw fibre was excisable under T.I. 22F of the First Schedule to the Central Excises and Salt Act, 1944 (hereinafter referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efit of the aforesaid procedure vide an application dated 4.2.1985 moved before respondent No. 3 herein who is the competent authority for the purpose. By an order dated 7.2.1986 respondent No.3 rejected the said application on the ground that the petitioners were not entitled for availing the proforma credit under rule 56A because the inputs and outputs did not fall under the same tariff item. The said order is at annexure 'A' to special civil application No. 2010 of 1985 which is the main petition. The petitioners have challenged the said order at Annexure 'A' and have contended that the third respondent had patently erred in rejecting the application and in refusing the benefit of the proforma credit procedure to the petitioners' final product asbestos cement products. The petitioners have prayed for suitable writ, direction or order calling upon the respondents to allow petitioner, No. l company to avail of the proforma credit on duty paid on asbestos and cement used in the manufacture of asbestos cement products at the petitioners' factory at Ahmedabad in accordance with the provisions of rule 56-A of the Rules. The petitioners have also prayed for interim relief in that conne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be totally immaterial. That if such a view is not taken, the very act of specifying under rule 56A (1) by the Central Government would be otiose and an exercise in futility as many excisable goods are specified by the Central Government under rule 56A (1) which consist of inputs thereof falling under different tariff items. If they are not to be given benefit of rule 56A (2), the very specification thereof under rule 56A (1) would be a null and void exercise. Mr. Patel next contended that proviso to sub-rule (2) of rule 56A refers to finished excisable goods which are genus of which excisable goods are species and that proviso (i) contemplates a separate category of finished excisable goods while proviso (ii) contemplates entirely a different category of finished excisable goods. That both sub-parts of the proviso apply in distinct and different fields and try to cater to different requirements. In this connection, Mr. Patel further submitted that employment of the word 'and' by the rule. making authority between proviso (i) and proviso (ii) indicates that two different situations are dealt with by these two parts of the proviso and in either case, proforma credit benefit would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Central Government specifically sanctions remission or adjustment of duty thereon, the procedure of rule 56A would be available to the specified excisable goods manufactured out of them and consequently the specification made by the Central Government under rule 56A (1) quo these articles cannot be said to be otiose. He lastly submitted that as the proviso has to be read harmoniously with sub-rule (1) and sub-rule (2) of rule 56A, there is no question of repugnancy between them. He, therefore, submitted that the order passed by respondent No. 3 is perfectly legal and valid and justified on the facts of the present case. 8. Points for determination: In the light of the aforesaid rival contentions, the following points arise for our consideration: - (1) Whether rule 56A(1) procedure is available for specified excisable commodity which is manufactured out of inputs not excisable under the same tariff items of the Central Excise Tariff. (2) If the answer is in the negative, whether proviso (ii) of sub-rule (2) of rule 56A becomes repugnent to the provisions of rule 56A(1) read with (2). Point No. 1 :- Before proceeding to deal with the first point for determination, it becom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , by notification in the Official Gazette, specify the excisable goods in respect of which the procedure laid down in sub-rule (2) shall apply. (2) The Collector may, on application made in this behalf and subject to the conditions mentioned in sub-rule (3) and such other conditions as may from time to time be prescribed by the Central Government permit a manufacturer of any excisable goods specified under sub-rule (1) to receive duty paid material or component parts or finished product (like asbestos cement). In his factory for the manufacture of these goods or for the mere convenient distribution of finished product and allow a credit of the duty already paid on such material or component parts or finished product, as the .case may be: Provided that no credit of duty shall be allowed in respect of any material or component part used in the manufacture of finished excisable goods unless: - (a) duty has been paid for such material or component part under the same item or sub. item as the finished excisable goods; or (b) remission or adjustment of duty paid for such material or component part has been specifically sanctioned by the Central Government. 11. Thereafter on 27. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under sub-rule (3) or in the account current maintained under sub-rule (3) or rule 9 or rule 178 (1) or if such adjustment be not possible for any reason, by cash recovery from or, as the case may be, refund to the manufacturer availing of the procedure contained in this rule". 12. Thereafter, rule 56A (2) underwent further modification and ultimately, rule 56A (1) and (2) stood in the following form at the relevant time: - "56A. Special procedure for movement of duty paid materials or component parts for use in the manufacture of finished excisable goods. (1) Notwithstanding anything contained in these rules, the Central Government may, by notification in the Official Gazette, specify the excisable goods in respect of which the procedure laid down in sub-rule (2) shall apply. (2) The Collector, may, on application made in this behalf and subject to the conditions mentioned in sub-rule (3) and such other conditions as may from time to time be prescribed by the Central Government, permit a manufacturer of any excisable goods specified under sub-rule (1) to receive material or component parts or finished product (like asbestos cement), on which the duty of excise or the additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a credit procedure unless inputs utilised for manufacturing finished excisable goods were excisable under the same tariff item as the finished excisable goods as per clause (a) in absence of application of clause (b). It is only on account of recasting of the proviso to sub-rule (2) of rule 56A with effect from 28.12.1968 that the question which is posed for our consideration has assumed importance. In our view, the question has to be answered in the light of the express language of rule 56A (1) and (2) read with the proviso attached to sub-rule (2) as held the field at the relevant time when order Ex. A was passed. It is pertinent to note that the caption of rule 56A in terms refers to the special procedure for movement of duty paid materials or component parts for use in the manufacture of finished excisable goods. Thus, the whole scheme of rule 56A contemplates proforma credit procedure to be made available in connection with those finished excisable goods which have been manufactured by utilising duty paid material or component parts as inputs. It is true, as submitted by Mr. Patel for the petitioners, that sub-rule (1) of rule 56A refers to specification of excisable goods by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of excise or additional duty under section 3 of the Customs Tariff Act, as the case may be, have been paid, in his factory for the manufacture of these goods or for more convenient distribution of finished goods, so received and the Collector has to allow credit of duty already paid on such material or component parts or finished goods, to the manufacturer, as the case may be. This is the 'credit rule' contemplated by sub-rule (2) of rule 56A. However, that rule is fettered or hedged by the proviso which is most relevant for our present purpose. The proviso which enacts 'no credit rule' is in a way on exception to the main provisions of sub-rule (2) of rule 56A or to put it differently, it dilutes or whittles down the general sweep and mandate of rule 56A (2). 14. It is now time for us to have a close look at the proviso alongwith its sub-paras (i) and (ii), as they stood at the relevant time when the impugned order was passed. The proviso mandates that no credit of duty shall be allowed in respect of any material or component parts used in the manufacture of finished excisable goods in the contingencies contemplated by sub-paras (i) and of the proviso. It is pertinent to note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit rule deals with both the inputs and outputs and their interaction on each other. Scheme of the proviso is an integrated one wherein inputs and ultimate output resulting therefrom are dealt with together. Sub-para (i) of the proviso deals with outputs. It is not complete without the provision about inputs which is laid down in sub-para (ii). Consequently, both sub-paras (i) and (ii) of the proviso will have to be read together to get a complete picture about the no credit rule as enacted by the proviso. If sub-para (i) is read in isolation as a separate scheme and situation as suggested by Mr. Patel, only a truncated picture of the proviso will emerge and the real intent of the rule making, authority underlying the proviso will not become highlighted. Sub-paras (i) of the proviso tells us that if specified finished excisable commodity is totally exempted from excise duty and is assessed to nil duty, it will not earn the benefit of proforma credit procedure. But that is not all. Further question arises as to how the inputs from which such specified excisable commodity is manufactured are treated by the rule making authority so that the finished excisable commodity produced ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial or component parts out of which such finished excisable goods are manufactured even though they may be excisable under different tariff items as compared to the finished excisable goods which result from them, these inputs have not earned any remission or adjustment of duty paid on them on account of specific enaction by the Central Government. Thus, a harmonious reading of two sub-paras of the proviso projects the following picture; The specified finished excisable commodity will not get benefit of the proforma credit if it is wholly exempt from excise duty or chargeable to nil duty. Thus, only those finished excisable goods duly specified under sub-rule (1) of rule 56A will not get the benefit of proforma credit which are exigible to excise duty. But that is not sufficient. Such finished excisable goods which have to pay excise duty will also have to satisfy further requirement of sub-paras (ii) of the proviso before becoming entitled to the benefit of the proforma credit. The inputs which go to manufacture these specified finished excisable goods which bear excise duty must themselves either be exigible to tax under the same tariff item or alternatively even though those in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inished goods fall in the same tariff item in cases not covered by proviso (b). It is only for the first time that proviso (i) was inserted on 28.12.1968. Thereby what was implicit between 1963 and 1968 was made explicity by the rule making authority. Thus, by inserting sub-para (i) to the proviso, no new category of situations has been added by the rule making authority. Further, requirements of the proviso to clauses (a) or (b) have got to be satisfied by the concerned finished excisable commodity which is specified, to remain within the sweep of credit rule envisaged by sub-rule (2) of rule 56A and for not being hit by no credit rule laid down by the proviso. It is necessary to note that requirements of proviso (i) and (ii) have remained all throughout operating from 8.1.1963 upto date. Only because proviso (i) was added on 20.12.1968 while retaining the then existing requirements in the newly cast sub-para (ii) of the proviso, it cannot be said that the aforesaid basic requirements of the rule which had existed all throughout have been given a go-bye. In this connection, it is also profitable to have a look at rule 56A, sub-rule (3) (vi) (a) and (b). Sub-rule (3) (vi) (a) provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as envisaged by the rule making authority while enacting rule 56A. This scheme postulates for its operation not only taxable finished excisable specified goods but the inputs which themselves have borne the excise duty and which are utilised in manufacture of specified finished excisable commodities. It is exiomatic to say that when the finished specified excisable commodity is exigible to tax under a given tariff item, if the inputs which have been utilised for its manufacture are also exigible to excise duty under the same tariff item, the manufacturer of such manufactured central excise commodity would get exposed to the burden of double taxation. When the either manufactures inputs or raw material in his own factory, for the purpose of utilising them for the manufacture of finished specified products or even if purchases such inputs and raw materials from outside when these raw materials bear excise duty, such manufacturer has to bear the burden of this duty because the duty paid inputs which he might have purchased from outside or inputs which he may have manufactured which in his turn will attract excise duty, would add to his cost of production. When these inputs are exigibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral Government, finished excisable goods even though specified would not be entitled to earn the benefit of proforma credit procedure. It is pertinent to note that the same Central Government which is entitled to specify finished excisable goods as per rule 56A (1) for enabling them to earn the benefit of procedure of proforma credit can as contemplated under proviso pa?ra (iii) (b), be an authority which can sanction remission or adjustment of duty on material or component parts which would otherwise be payable on the under different tariff items and if specifying authority specifically sanctions such remission or adjustment of duty on such inputs even though they may be excisable under different tariff items as compared to the finished excisable commodity manufactured out of them. Then, of course, the procedure of proforma credit will be available to such finished excisable goods despite the fact that inputs are not taxable under the same tariff items. Thus the entire scheme of proforma credit procedure and the benefit available to specified excisable goods mentioned therein is a well-knit and composite scheme as reflected by rule 56A (1) (2) read with the proviso with both its s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) which provides that even in cases where specified excisable goods are manufactured out of the material or component parts which may not be taxable under the same tariff item, even then, if the Central Government has specifically sanctioned remission or adjustment of duty paid on them, manufacturer of such specified excisable goods can legitimately claim benefit of the procedure of proforma credit as per rule 56A (2). As we have already seen earlier, proviso to sub-rule (2) of rule 56A when read in a conjoint manner along with its parts and sub-parts, the intention of the rule making authority becomes at once clear that all excisable specified goods which are liable to pay excise duty can get the benefit of proforma credit procedure provided either (a) inputs out of which they are prepared or manufactured have borne the excise duty under the same tariff item under which finished excisable goods are excisable or (b) alternatively, if inputs out of which such duty paid finished specified excisable goods are manufactured have earned the benefit of remission or adjustment of duty paid on them under specific sanction by the Central Government. Thus, in both these types of cases, no cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernment in exercise of its powers under rule 56A (1) specifies excisable goods, if not today then even tomorrow, when the Central Excise Tariff schedule gets modified, the concerned specified excisable commodity may start earning benefit of rule 56A (1). The Central Government at the time of specification of excisable goods under rule 56A (1) cannot naturally visualise all future changes in the central excise tariff schedule to be made by the Parliament from time to time according to the exigencies of situations. Under these circumstances, if the Central Government in its wisdom specifies excisable goods at a given point of time for the benefit of procedure of rule 56A (1), if some of them are not entitled to get benefit on account of the fact that they did not meet with the requirements of proviso (ii) (a) at a given point of time, it is not as if, in future, they will not start earning the benefit once by reshuffling of the central excise tariff schedule by the Parliament, the inputs and outputs are brought on par and are covered for the purpose of central excise liability, by the same tariff item, such future contingencies cannot be ruled out and that is the additional reason wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laid down by the proviso to sub-rule (2) of rule 56A may not be imposing any procedural conditions, as these provisions impose substantive fetters on the right to earn benefit of proforma credit procedure qua any excisable specified commodity, these fetters enacted by the rule making authority in its wisdom cannot be by-passed or ignored, and as we have seen earlier, but for these fetters, the scheme of proforma credit procedure would be denuded of its real content and substance. This is the full and complete scheme of proforma credit as envisaged by the rule making authority as per rule 56A (1) read with sub-rule (2) and the proviso with both of its sub-parts. For earning this benefit, all the aforesaid requirements have to be strictly followed by the concerned excisable specified goods. If these requirements are not fully met, the benefit of proforma credit will stand denied to such specified excisable goods and they will remain outside the beneficial sweep of rule 56A (1) despite their specification under rule 56A (1). Another relevant provision which is also required to be noted in this connection is found in rule 56A (2B) alongwith its proviso. This provision reads as under : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anything contained in these rules", what is mentioned in the proviso and sub-proviso (ii) (a) is rendered ineffective. It is not possible to agree with the aforesaid view of the officer concerned. The non-obstante clause with which rule 56A (1) starts only indicates that whatever might have contained in any other rules, rule 56A would operate of its own. Moment that result is achieved, full effect has to be given to what is stated in rule 56A (i) namely that the concerned specified excisable goods would be entitled to the proforma credit procedure laid down by sub-rule (2). Consequently, the whole of sub-rule (2) gets attracted vis-a-vis such excisable goods. Once the whole procedure of sub-rule (2) gets attracted, it brings in its wake not only sub-rule (2), first part, but also the proviso attached to sub-rule (2) which travels alongwith sub-rule (2), first part and gets attached to the specified excisable goods. It is not as if that the procedure laid down in sub-rule (2) which is made applicable to specified excisable goods by virtue of rule 56A (2) has to be split up in two parts and only first part of sub-rule (2) viz. its main part would get attracted to the specified excis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t can be urged with any emphasis that proviso to sub-rule (2) of rule 56A would cut across the field occupied by sub-rule (1) of rule 56A or for that matter, main part of sub-rule (2) of rule 56A. In fact, the proviso itself gets projected into the operation of sub-rule (2) of rule 56A by the very mandate of sub-rule (1) and consequently, instead of being repugnant to rule 56A (1) or main part of sub-rule (2), it becomes a part and parcel of the entire well knit composite scheme of rule 56A and consequently, all these parts of rule 56A can harmoniously co-exist and there would never arise any occasion for repugnancy between them as tried to be suggested by Mr. Patel. We have already discussed earlier how all these provisions can co-exist and they do co-exist and do operative on the very same field. Consequently, the alternative contention of Mr. Patel which has given rise to point No. 2 also has to be rejected as being totally devoid of any substance. 22. It is not in dispute between the parties that so far as the facts of the present case are concerned, specified finished excisable commodity manufactured by the petitioner No.l concern is asbestos cement products. They were exigi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt against the present order. Mr. S.B. Vakil for the respondents vehemently opposed this request. Mr. Vakil submitted that by now, the tax liability has gone up to Rs. 3 crores. Large amount of arrears of interest has also accrued thereon. He also stated that every month, an amount of Rs. 15,00,000/- by way of excise duty will have to be paid by the petitioners towards the disputed claim and if any stay is granted or continued, this liability will remain un-discharged. Mr. Vakil, therefore, submitted that this court may direct the petitioners to pay up the past arrears of duty which were not paid by the petitioners on account of interim relief of this court with 15% interest and in any case, suitable conditions may be imposed against the petitioners on that basis, if any interim relief is to be granted by this court. 26. Having given our anxious consideration to the rival contentions canvassed by Mr. Patel for the petitioners and Mr. Vakil for the respondents, we have reached the conclusion that once the petitions are dismissed, whatever tax liability has accrued due and payable by the petitioners to the respondents can obviously be enforced by the respondents alongwith their cl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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